EURGBP: Return To Median Line as Theme of Downtrend in Channel Persists
The daily candle chart below shows the price history of the Euro currency (EUR) versus the Great British pound (GBP) over the medium term and trading at .8362 (as of publication).This currency pair is known as EURGBP and is trading right on sessions lows off .8359 following a small pullback after today's open.
In the previous five trading sessions including yesterday the pair had closed higher as prices pushed up a very short term bullish line (point 1 in blue on chart), however after failing to pass the median line of the bearish channel (point 6 in red) which acted as resistance -the very short term momentum has reversed (at least for now).
The last time the pair was covered in the Ideas You can Trade series, the median line was noted as a likely place the pair would return to test before the lower support line of medium term channel (point 6). Since then, that is exactly what followed, on almost four separate occasions.
If the bullish momentum of the past week continues, the pair may continue to ascend its current trajectory (on point 1) with a target near .8500 in coming weeks.
If the bullish support line (point 2) fails to hold, a bearish continuation down a very short term bearish resistance line (such as point 5 in yellow) may follow with a target on the line similar in slope to the medium term bullish support line (point 4 in aqua) just above .8250 in the short term.
Below are examples of how to trade a bearish continuation or a bullish reversal:
1. BULLISH BUY ENTRY ORDER: Create a “Buy Entry Stop” @ .8401 with a Limit to take profit @ .8449 and a stop-loss @ .8369 Risk/Reward Summary: Limit risk = +48 pips profit / (-32) Stop-loss risk = Gain to Loss ratio = 1.50
2. BEARISH SELL ENTRY ORDER: Create a “Sell Entry Stop” @ .8339 with a Limit to take profit @ .8301 and a stop-loss @ .8368 Risk/Reward Summary: Limit risk = +38 pips profit / (-29) Stop-loss risk = Gain to Loss Ratio = 1.31
Medium term daily candle chart: